UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21558
CNL INCOME FUND XII, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3078856
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($10 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes __ No X
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 4,500,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund XII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 20, 1991. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on September 29, 1992, the
Partnership offered for sale up to $45,000,000 of limited partnership interests
(the "Units") (4,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
March 12, 1992. The offering terminated on March 15, 1993, at which date the
maximum offering proceeds of $45,000,000 had been received from investors who
were admitted to the Partnership as limited partners ("Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$39,615,456, and were used to acquire 48 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer, to loan $208,855 to the tenant of Kingsville Real Estate Joint
Venture and to establish a working capital reserve for Partnership purposes.
As of December 31, 2000, the Partnership owned 41 Properties directly
and owned seven Properties indirectly through joint venture or tenancy in common
arrangements. During the year ended December 31, 2001, the Partnership and the
joint venture partner liquidated Middleburg Joint Venture and the Partnership
received its pro rata share of the liquidation proceeds. The Partnership
reinvested the majority of these proceeds in a joint venture arrangement, CNL
VIII, X, XII Kokomo Joint Venture, with CNL Income Fund VIII, Ltd. and CNL
Income Fund X, Ltd., each of which is a Florida limited partnership and an
affiliate of the General Partners, to purchase and hold one Property. In
addition, during 2001, the Partnership sold its Properties in Rialto, California
and Winter Haven, Florida and reinvested the net sales proceeds in two
Properties, one each in Pasadena and Pflugerville, Texas. During the year ended
December 31, 2002, the Partnership sold its Property in Arlington, Texas to a
third party and reinvested the net sales proceeds from the sale and the
remaining portion of the net sales proceeds from the 2001 sale of the Property
in Winter Haven, Florida in a Property in San Antonio, Texas. In addition,
during 2002, the Partnership sold its Property in Valdosta, Georgia to a third
party and reinvested the net sales proceeds in a Property in Clive, Iowa. During
the year ended December 31, 2003, the Partnership sold its Property in Tempe,
Arizona to a third party and the General Partners intend to reinvest the
proceeds in an additional Property. As of December 31, 2003, the Partnership
owned 40 Properties directly and held interests in six Properties owned by joint
ventures in which the Partnership is a co-venturer and one Property owned with
an affiliate of the General Partners as tenants-in-common. The Partnership
generally leases the Properties on a triple-net basis with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities.
The Partnership holds its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners consider factors such as potential capital
appreciation, net cash flow and federal income taxes. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property purchase options
granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms ranging from 5 to 20 years (the average being 18 years), and expire
between 2004 and 2020. Generally, the leases are on a triple-net basis, with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities. The leases of the Properties provide for minimum base annual
rental payments (payable in monthly installments) ranging from approximately
$48,000 to $228,500. Generally, the leases provide for percentage rent, based on
sales in excess of a specified amount, to be paid annually. In addition, the
majority of the leases provide that, commencing in specified lease years
(generally the sixth lease year), the annual base rent required under the terms
of the lease will increase.
Generally, the leases of the Properties provide for two to five
successive five-year renewal options subject to the same terms and conditions as
the initial lease. Lessees of 35 of the Partnership's 47 Properties also have
been granted options to purchase Properties at the Property's then fair market
value after a specified portion of the lease term has elapsed. Fair market value
will be determined through an appraisal by an independent appraisal firm. Under
the terms of certain leases, the option purchase price may equal the
Partnership's original cost to purchase the Property (including acquisition
costs), plus a specified percentage from the date of the lease or a specified
percentage of the Partnership's purchase price, if that amount is greater than
the Property's fair market value at the time the purchase option is exercised.
The leases generally provide that, in the event the Partnership wishes
to sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
The tenant of the Property in Kingsville, Texas, owned by Kingsville
Real Estate Joint Venture, in which the Partnership has a 31.13% interest, did
not exercise its option to renew its lease. The lease expired in January 2004.
The lost revenues that will result from the loss of this lease will have an
adverse effect on net income earned by joint ventures if the joint venture is
unable to re-lease the Property in a timely manner.
Major Tenants
During 2003, two lessees (or groups of affiliated tenants) of the
Partnership, (i) Jack in the Box Inc. and Jack in the Box Eastern Division, L.P.
(which are affiliated entities under common control of Jack in the Box Inc.)
(hereinafter referred to as "Jack in the Box Inc.") and (ii) Flagstar
Enterprises, Inc., each contributed more than 10% of the Partnership's total
rental revenues (including the Partnership's share of rental revenues from
Properties owned by joint ventures and a Property owned with an affiliate of the
General Partners as tenants-in-common). As of December 31, 2003, Jack in the Box
Inc. was the lessee under leases relating to eight restaurants and Flagstar
Enterprises, Inc. was the lessee under leases relating to 11 restaurants. It is
anticipated that based on the minimum rental payments required by the leases,
these two lessees each will continue to contribute more than 10% of the
Partnership's total rental revenues in 2004. In addition, four Restaurant
Chains, Long John Silver's, Hardee's, Jack in the Box and Denny's, each
accounted for more than 10% of the Partnership's total rental revenues during
2003 (including the Partnership's share of rental revenues from Properties owned
by joint ventures and a Property owned with an affiliate of the General Partners
as tenants-in-common). In 2004, it is anticipated that these four Restaurant
Chains each will continue to account for more than 10% of the Partnership's
total rental revenues to which the Partnership is entitled under the terms of
the leases. Any failure of these lessees or Restaurant Chains will materially
affect the Partnership's operating results if the Partnership is not able to
re-lease these Properties in a timely manner. No single tenant or groups of
affiliated tenants lease Properties with an aggregate carrying value in excess
of 20% of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following joint venture and
tenancy in common arrangements as of December 31, 2003:
Entity Name Year Ownership Partners Property
Des Moines Real Estate Joint 1992 18.61% CNL Income Fund VII, Ltd. Des Moines, WA
Venture CNL Income Fund XI, Ltd.
Entity Name Year Ownership Partners Property
Williston Real Estate Joint 1993 59.05% CNL Income Fund X, Ltd. Williston, FL
Venture
Kingsville Real Estate Joint 1993 31.13% CNL Income Fund IV, Ltd. Kingsville, TX
Venture
Columbus Joint Venture 1998 27.72% CNL Income Fund XVI, Ltd. Columbus, OH
CNL Income Fund XVIII, Ltd.
Bossier City Joint Venture 1999 55.00% CNL Income Fund VIII, Ltd. Bossier City, LA
CNL Income Fund XIV, Ltd.
CNL Income Fund VII, Ltd., 2000 57.00% CNL Income Fund VII, Ltd. Colorado Springs,
and CNL Income Fund XII, CO
Ltd. Tenants in Common
CNL VIII, X, XII Kokomo Joint 2001 80.00% CNL Income Fund VIII, Ltd. Kokomo, IN
Venture CNL Income Fund X, Ltd.
Each of the joint ventures or tenancies in common were formed to hold
one Property. Each CNL Income Fund is an affiliate of the General Partners and
is a limited partnership organized pursuant to the laws of the state of Florida.
The Partnership shares management control equally with the affiliates of the
General Partners.
The joint venture and tenancy in common arrangements provide for the
Partnership and its joint venture or tenancy in common partners to share in all
costs and benefits in proportion to each partner's percentage interest in the
entity or Property. The Partnership and its partners are also jointly and
severally liable for all debts, obligations and other liabilities of the joint
venture or tenancy in common. Net cash flow from operations is distributed to
each joint venture or tenancy in common partner in accordance with its
respective percentage interest in the entity or Property.
CNL VIII, X, XII Kokomo Joint Venture has an initial term of 30 years.
Williston Real Estate Joint Venture, Des Moines Real Estate Joint Venture,
Kingsville Real Estate Joint Venture, Columbus Joint Venture and Bossier City
Joint Venture each have an initial term of 20 years and, after the expiration of
the initial term, continues in existence from year to year unless terminated at
the option of either joint venturer by an event of dissolution. Events of
dissolution include the bankruptcy, insolvency or termination of any joint
venturer, sale of the Property owned by the joint venture and mutual agreement
of the Partnership and its joint venture partner to dissolve the joint venture.
Any liquidation proceeds, after paying joint venture debts and liabilities and
funding reserves for contingent liabilities, will be distributed first to the
joint venture partners with positive capital account balances in proportion to
such balances until such balances equal zero, and thereafter in proportion to
each joint venture partner's percentage interest in the joint venture.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer or assign its interest without first offering
it for sale to its partner, either upon such terms and conditions as to which
the parties may agree or, in the event the parties cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture or tenancy in common interest.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
RAI Restaurants, Inc. (the "Advisor"), an affiliate of the General
Partners, provides certain services relating to management of the Partnership
and its Properties pursuant to a management agreement with the Partnership.
Under this agreement, the Advisor is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices, and providing
information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental revenues from Properties
wholly owned by the Partnership plus the Partnership's allocable share of gross
revenues of joint ventures in which the Partnership is a co-venturer, but not in
excess of competitive fees for comparable services.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
During 2003, CNL Capital Management, Inc., ("CCM"), a wholly owned
subsidiary of CNL Financial Group, Inc., began providing certain strategic
advisory services to the General Partners relative to the Partnership's
business. CCM is not reimbursed for these services by the Partnership. CCM also
began providing some accounting and portfolio management services to the
Partnership during 2003, through a subcontract with the Advisor.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation, the officers and employees of CNL Restaurant Properties, Inc.
(formerly CNL American Properties Fund, Inc.), the parent company of the
Advisor, and the officers and employees of CCM perform certain services for the
Partnership. In addition, the General Partners have available to them the
resources and expertise of the officers and employees of CNL Financial Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2003, the Partnership owned 47 Properties. Of the 47
Properties, 40 are owned by the Partnership in fee simple, six are owned through
joint venture arrangements and one is owned with an affiliate through a tenancy
in common arrangement. See Item 1. Business - Joint Venture and Tenancy in
Common Arrangements. The Partnership is not permitted to encumber its Properties
under the terms of its partnership agreement.
Description of Properties
Land. The Partnership's Property sites range from approximately 18,900
to 120,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership,
either directly or indirectly through joint venture or tenancy in common
arrangements, as of December 31, 2003 by state.
State Number of Properties
Alabama 1
Arizona 4
California 1
Colorado 1
Florida 2
Georgia 5
Indiana 1
Iowa 1
Louisiana 2
Mississippi 2
Missouri 2
New Mexico 1
North Carolina 4
Ohio 2
South Carolina 2
Tennessee 4
Texas 11
Washington 1
------
TOTAL PROPERTIES 47
======
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The Partnership's
buildings generally are rectangular and are constructed from various
combinations of stucco, steel, wood, brick and tile. Building sizes range from
approximately 2,100 to 11,400 square feet. All buildings on Properties are
freestanding and surrounded by paved parking areas. Buildings are suitable for
conversion to various uses, although modifications may be required prior to use
for other than restaurant operations. As of December 31, 2003, the Partnership
had no plans for renovation of the Properties. Depreciation expense is computed
for buildings and improvements using the straight-line method using a
depreciable life of 40 years for federal income tax purposes.
As of December 31, 2003, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including the Property owned through a
tenancy in common arrangement) for federal income tax purposes was $33,053,374
and $9,008,446, respectively.
The following table lists the Properties owned by the Partnership,
either directly or indirectly through joint venture or tenancy in common
arrangements, as of December 31, 2003 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 1
Bennigan's 1
Burger King 1
Denny's 8
Golden Corral Buffet and Grill 2
Hardee's 11
IHOP 1
Jack in the Box 8
KFC 1
Krispy Kreme 1
Krystal 1
Long John Silver's 6
Taco Cabana 3
Other 2
-----
TOTAL PROPERTIES: 47
=====
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of
Restaurant Chains. The leases are generally on a long-term "triple net" basis,
meaning that the tenant is responsible for repairs, maintenance, property taxes,
utilities and insurance.
The following is a schedule of the average rent per property and
occupancy rates for the years ended December 31:
2003 2002 2001 2000 1999
-------------- ------------- -------------- ------------- -------------
Rental Income (1) $ 4,256,904 $ 4,252,212 $ 4,210,846 $4,102,805 $4,299,590
Properties 47 48 48 48 48
Average Per Property $ 90,572 $ 88,588 $ 87,726 $ 85,475 $ 89,575
Occupancy Rate 100% 100% 100% 100% 100%
(1) Rental income includes the Partnership's share of rental income from the
Properties owned through joint venture arrangements and tenancy in common
arrangements.
The following is a schedule of lease expirations for leases in place as
of December 31, 2003 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2004 1 $ 14,942 0.34%
2005 -- -- --
2006 -- -- --
2007 1 198,625 4.50%
2008 -- -- --
2009 1 55,233 1.25%
2010 2 108,274 2.45%
2011 6 687,345 15.55%
2012 8 787,792 17.82%
2013 17 1,452,557 32.86%
Thereafter 9 1,115,418 25.23%
---------- ------------- -------------
Total (1) 45 $4,420,186 100.00%
========== ============= =============
(1) Excludes two Properties which were sold in 2004.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2003 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business -Leases.
Flagstar Enterprises, Inc. leases 11 Hardee's restaurants. The initial
term of each lease is 20 years (expiring between 2012 and 2013) and the average
minimum base annual rent is approximately $76,800 (ranging from approximately
$57,600 to $93,300).
Jack in the Box Inc. leases eight Jack in the Box restaurants. The
initial term of each lease is 18 years (expiring between 2010 and 2011) and the
average minimum base annual rent is approximately $107,500 (ranging from
approximately $83,500 to $135,800).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners, nor any affiliates
of the Partnership, nor any of their respective Properties, is party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 12, 2004, there were 3,464 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 2003, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
inception through December 31, 2003, the price for any Unit transferred pursuant
to the Plan was $9.50 per Unit. The price paid for any Unit transferred other
than pursuant to the Plan was subject to negotiation by the purchaser and the
selling Limited Partner. The Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2003 and 2002 other than
pursuant to the Plan, net of commissions.
2003 (1) 2002 (1)
---------------------------------- ------------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- --------- ----------
First Quarter $9.50 $ 6.34 $ 7.76 $9.50 $ 6.37 $ 8.12
Second Quarter 9.50 7.27 8.96 7.09 6.73 6.90
Third Quarter 10.00 6.38 8.16 9.50 6.37 8.76
Fourth Quarter 10.00 8.00 9.34 9.50 6.37 7.74
(1) A total of 41,228 and 53,865 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2003 and 2002, respectively.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the partnership agreement.
For the years ended December 31, 2003 and 2002, the Partnership
declared cash distributions of $3,825,008 and $3,937,508, respectively, to the
Limited Partners. Distributions during the year ended December 31, 2002 included
$112,500 in a special distribution representing cumulative excess operating
reserves. No amounts distributed to partners for the years ended December 31,
2003 and 2002, are required to be or have been treated by the Partnership as a
return of capital for purposes of calculating the Limited Partners' return on
their adjusted capital contributions. No distributions have been made to the
General Partners to date.
As indicated in the chart below, distributions were declared at the
close of each of the Partnership's calendar quarters. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis.
Quarter Ended 2003 2002
---------------------------- --------------- ---------------
March 31 $ 956,252 $ 956,252
June 30 956,252 956,252
September 30 956,252 956,252
December 31 956,252 1,068,752
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
(b) Not applicable.
Item 6. Selected Financial Data
2003 2002 2001 2000 1999
------------- -------------- ------------- -------------- -------------
Year ended December 31:
Continuing Operations (4):
Revenues $3,573,684 $3,427,961 $3,411,069 $3,582,719 $3,542,263
Equity in earnings of
unconsolidated joint
ventures 395,641 409,465 364,478 373,694 344,964
Income from continuing
operations (1) 3,097,163 2,974,786 2,865,236 3,383,824 3,168,738
Discontinued Operations (4):
Revenues 209,229 334,617 463,374 496,580 536,372
Income from and gain on
disposal of discontinued
operations (2) 141,131 800,770 403,014 436,392 476,305
Net income 3,238,294 3,775,556 3,268,250 3,820,216 3,645,043
Income per Unit:
Continuing operations $ 0.69 $ 0.66 $ 0.64 $ 0.75 $ 0.70
Discontinued operations 0.03 0.18 0.09 0.10 0.11
------------- -------------- ------------- -------------- -------------
$ 0.72 $ 0.84 $ 0.73 $ 0.85 $ 0.81
============= ============== ============= ============== =============
Cash distributions declared (3) $3,825,008 $3,937,508 $3,825,008 $3,825,008 $3,825,008
Cash distributions declared
per 0.85 0.88 0.85 0.85 0.85
Unit (3)
At December 31:
Total assets $39,142,814 $39,827,704 $39,836,611 $40,319,220 $40,440,927
Partners' capital 37,900,660 38,487,374 38,649,326 39,206,084 39,210,876
(1) Income from continuing operations for the years ended December 31,
2001, 2000 and 1999, includes $349,516, $254,405 and $74,714,
respectively, from gains on sales of assets. Income from continuing
operations for the years ended 2002, 2001 and 2000 includes $6,584,
$362,265 and $155,281, respectively, for provisions for write-down of
assets.
(2) Income from and gain on disposal of discontinued operations for the
years ended December 31, 2003 and 2002 includes $57,318 and $501,083,
respectively, from gain on disposal of discontinued operations.
(3) Distributions for the year ended December 31, 2002 include a special
distribution to the Limited Partners of $112,500 which represented
cumulative excess operating reserves.
(4) Certain items in prior years' financial data have been reclassified to
conform to 2003 presentation. These reclassifications had no effect on
total net income. The results of operations relating to properties that
were identified for sale as of December 31, 2001 but sold subsequently
are reported as continuing operations. The results of operations
relating to properties that were either identified for sale and
disposed of subsequent to January 1, 2002 or were classified as held
for sale as of December 31, 2003 are reported as discontinued
operations for all periods presented.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on August 20, 1991, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, to be leased primarily to operators of
Restaurant Chains. The leases are generally triple-net leases, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The leases of the Properties provide for minimum base annual rental
amounts (payable in monthly installments) ranging from approximately $48,000 to
$228,500. Generally, the leases provide for percentage rent based on sales in
excess of a specified amount. In addition, a majority of the leases provide
that, commencing in specified lease years (ranging from the third to the sixth
lease year), the annual base rent required under the terms of the lease will
increase. As of December 31, 2002 and 2001, the Partnership owned 41 Properties
directly and held interests in seven Properties either through joint venture or
tenancy in common arrangements. As of December 31, 2003, the Partnership owned
40 Properties directly and held interests in seven Properties either through
joint venture or tenancy in common arrangements.
Capital Resources
Cash from operating activities was $4,064,549, $3,939,391 and
$3,934,568, for the years ended December 31, 2003, 2002, and 2001, respectively.
The increase in cash from operating activities during the year ended December
31, 2003, as compared to the previous year, was a result of changes in the
Partnership's working capital, such as the timing of transactions relating to
the collection of receivables and the payment of expenses, and changes in income
and expenses, such as changes in rental revenues and changes in operating and
Property related expenses. Cash from operating activities during 2002, as
compared to 2001,was consistent.
Other sources and uses of cash included the following during the years
ended December 31, 2003, 2002 and 2001.
In March 2001, Middleburg Joint Venture, in which the Partnership owned
an 87.54% interest, sold its Property to the tenant in accordance with the
option under its lease agreement to purchase the Property, for $1,900,000. Due
to the fact that the joint venture had recorded accrued rental income,
representing non-cash amounts that the joint venture had recognized as income
since the inception of the lease relating to the straight-lining of future
scheduled rent increases in accordance with generally accepted accounting
principles, a loss of approximately $61,900 was recorded by the joint venture in
March 2001. In April 2001, Middleburg Joint Venture was dissolved in accordance
with the joint venture agreement. No gain or loss on the dissolution of the
joint venture was incurred. The Partnership received approximately $1,663,300 as
a return of capital representing its 87.54% share of the liquidation proceeds of
the joint venture. In April 2001, the Partnership used these proceeds to invest
in a joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, to
acquire a Property in Kokomo, Indiana with CNL Income Fund VIII, Ltd. and CNL
Income Fund X, Ltd., each of which is a Florida limited partnership and an
affiliate of the General Partners. The Partnership accounts for its investment
using the equity method since the joint venture agreement requires the consent
of all partners on key decisions affecting the operations of the underlying
Property. The joint venture acquired this Property from CNL BB Corp., an
affiliate of the General Partners. The affiliate had purchased and temporarily
held title to the Property in order to facilitate the acquisition of the
Property by the joint venture. The purchase price paid by the joint venture
represented the costs incurred by the affiliate to acquire and carry the
Property. The Partnership contributed approximately $1,689,600 to acquire the
restaurant Property for an 80% interest in the profits and losses of the joint
venture.
In September 2001, the Partnership sold its Property in Rialto,
California to a third party and received net sales proceeds of approximately
$1,382,400 resulting in a gain of approximately $345,300. In October 2001, the
Partnership sold its Property in Winter Haven, Florida and received net sales
proceeds of approximately $1,090,300 resulting in a gain of approximately
$4,200. In December 2001, the Partnership invested the majority of the net sales
proceeds from the sales of these Properties in two Properties, one each in
Pasadena and Pflugerville, Texas. The Partnership acquired these Properties from
CNL Funding 2001-A, LP, an affiliate of the General Partners. The affiliate had
purchased and temporarily held title to the Properties in order to facilitate
the acquisition of the Properties by the Partnership. The purchase price paid by
the Partnership represented the costs incurred by the affiliate to acquire and
carry the Properties. These transactions, relating to the sales of the
Properties and the reinvestment of the proceeds qualified as like-kind exchange
transactions for federal income tax purposes.
In April 2002, the Partnership sold its Property in Arlington, Texas to
a third party and received net sales proceeds of approximately $1,248,200
resulting in a gain on disposal of discontinued operations of $334,000. In June
2002, the Partnership reinvested the majority of the remaining proceeds from the
2001 sale of the Property in Winter Haven, Florida and the net sales proceeds
from the sale of its Property in Arlington, Texas, in a Property in San Antonio,
Texas at an approximate cost of $1,287,700. The Partnership acquired this
Property from CNL Funding 2001-A, LP, a Delaware limited partnership and an
affiliate of the General Partners. CNL Funding 2001-A, LP had purchased and
temporarily held title to the Property in order to facilitate the acquisition of
the Property by the Partnership. The purchase price paid by the Partnership
represented the costs incurred by CNL Funding 2001-A, LP to acquire and carry
the Property.
In August 2002, the Partnership sold its Property in Valdosta, Georgia
to a third party and received net sales proceeds of approximately $623,700
resulting in a gain on disposal of discontinued operations of approximately
$167,100. In September 2002, the Partnership used the proceeds from the sale of
this Property to acquire a Property in Clive, Iowa from CNL Net Lease Investors,
L.P. ("NLI"), a California Limited Partnership, at an approximate cost of
$716,800. The sale of the Property and the reinvestment of the net sales
proceeds qualified as a like-kind exchange transaction for federal income tax
purposes. During 2002, and prior to the Partnership's acquisition of this
Property, CNL Financial LP Holding, LP ("CFN"), a Delaware Limited Partnership,
and CNL Net Lease Investors GP Corp., a Delaware corporation, purchased the
limited partner's interest and general partner's interest, respectively, of NLI.
Prior to this transaction, an affiliate of the Partnership's General Partners
owned a 0.1% interest in NLI and served as a General Partner of NLI. The
original general partners of NLI waived their rights to benefit from this
transaction. The acquisition price paid by CFN for the limited partner's
interest was based on the portfolio acquisition price. The Partnership acquired
the Property in Clive, Iowa at CFN's cost and did not pay any additional
compensation to CFN for the acquisition of the Property. Each CNL entity is an
affiliate of the Partnership's General Partners.
In December 2003, the Partnership sold its Property in Tempe, Arizona to
a third party and received net sales proceeds of $673,300 resulting in a gain on
disposal of discontinued operations of approximately $57,300. The general
partners intend to reinvest the net sales proceeds in an additional Property.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangement in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. Affiliates of the General
Partners from time to time incur certain operating expenses on behalf of the
Partnership for which the Partnership reimburses the affiliates without
interest.
At December 31, 2003, the Partnership had $2,063,934 in cash and cash
equivalents as compared to $1,263,592 at December 31, 2002. At December 31,
2003, these funds were held in demand deposit and money market accounts at
commercial banks. The increase in cash and cash equivalents at December 31, 2003
was due to the Partnership holding the proceeds from the sale of the Property in
Tempe, Arizona pending reinvestment in an additional Property. As of December
31, 2003, the average interest rate earned on rental income held in demand
deposit and money market accounts at commercial banks was less than one percent
annually. The funds remaining at December 31, 2003, after payment of
distributions and other liabilities, will be used to invest in an additional
Property and to meet the Partnership's working capital needs.
The tenant of the Property in Kingsville, Texas, owned by Kingsville
Real Estate Joint Venture, in which the Partnership has a 31.13% interest, did
not exercise its option to renew its lease. The lease expired in January 2004.
The lost revenues that will result from the loss of this lease will have an
adverse effect on net income earned by joint ventures if the joint venture is
unable to re-lease the Property in a timely manner.
In December 2003, the Partnership entered into an agreement with a third
party to sell its Property in Blue Springs, Missouri. In February 2004, the
Partnership entered into a separate agreement with a third party to sell its
Property in Toccoa, Georgia. In March 2004, the Partnership sold the Properties
and received aggregate net sales proceeds of approximately $2,273,900 resulting
in an aggregate gain on the sales of approximately $655,300. The General
Partners intend to use the proceeds received from the sales to invest in
additional Properties.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
on a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The Partnership generally distributes cash from operating activities
remaining after the payment of the operating expenses of the Partnership, to the
extent that the General Partners determine that such funds are available for
distribution. Based on current cash from operations, the Partnership declared
distributions to the Limited Partners of $3,825,008 for each of the years ended
December 31, 2003 and 2001. The Partnership declared distributions of $3,937,508
for the year ended December 31, 2002. Distributions during the year ended
December 31, 2002 included $112,500 in a special distribution representing
cumulative excess operating reserves. This represents a distribution of $0.85
per Unit for the years ended December 31, 2003 and 2001 and $0.88 per Unit for
the year ended December 31, 2002. No distributions were made to the General
Partners during the years ended December 31, 2003, 2002 and 2001. No amounts
distributed to the Limited Partners for the years ended December 31, 2003, 2002,
and 2001, are required to be or have been treated by the Partnership as a return
of capital for purposes of calculating the Limited Partners' return on their
adjusted capital contributions. The Partnership intends to continue to make
distributions of cash available for distribution to the Limited Partners on a
quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the year ended December 31, 2003, 2002 and 2001.
As of December 31, 2003 and 2002, the Partnership owed $19,503 and
$20,984, respectively, to affiliates for operating expenses and accounting and
administrative services. As of March 12, 2004, the Partnership had reimbursed
the affiliates for these amounts. Other liabilities including distributions
payable decreased to $1,222,651 at December 31, 2003, from $1,319,346 at
December 31, 2002, primarily as a result of a decrease in distributions payable.
The decrease was partially offset by an increase in accounts payable and accrued
expenses. The General Partners believe that the Partnership has sufficient cash
on hand to meet its working capital needs.
Off-Balance Sheet Transactions
The Partnership holds interests in various unconsolidated joint venture
and tenancy in common arrangements that are accounted for using the equity
method. The General Partners do not believe that any such interest would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.
Contractual Obligations, Contingent Liabilities, and Commitments
In December 2003, the Partnership entered into an agreement to sell the
Property in Blue Springs, Missouri. The Partnership sold this Property in March
2004.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for Leases"
("FAS 13"), and have been accounted for using either the direct financing or the
operating method. FAS 13 requires management to estimate the economic life of
the leased property, the residual value of the leased property and the present
value of minimum lease payments to be received from the tenant. In addition,
management assumes that all payments to be received under its leases are
collectible. Changes in management's estimates or assumption regarding
collectibility of lease payments could result in a change in accounting for the
lease.
The Partnership accounts for its unconsolidated joint ventures using the
equity method of accounting. Under generally accepted accounting principles, the
equity method of accounting is appropriate for entities that are partially owned
by the Partnership, but for which operations of the investee are shared with
other partners. The Partnership's joint venture agreements require the consent
of all partners on all key decisions affecting the operations of the underlying
Property.
Management reviews the Partnership's Properties and investments in
unconsolidated entities for impairment at least once a year or whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The assessment is based on the carrying amount of the
Property or investment at the date it is tested for recoverability compared to
the sum of the estimated future cash flows expected to result from its operation
and sale through the expected holding period. If an impairment is indicated, the
asset is adjusted to its estimated fair value.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Accordingly, when the Partnership makes the
decision to sell or commits to a plan to sell a Property within one year, its
operating results are reported as discontinued operations.
Results of Operations
Comparison of year ended December 31, 2003 to year ended December 31, 2002
Rental revenues from continuing operations were $3,518,104 during the
year ended December 31, 2003 as compared to $3,388,810 for the same period of
2002. The increase in rental revenues from continuing operations during 2003 was
primarily attributable to the Partnership reinvesting the proceeds from the 2002
sales of the Properties in Arlington, Texas and Valdosta, Georgia in a Property
in San Antonio, Texas in June 2002 and a Property in Clive, Iowa in September
2002.
The Partnership also earned $36,094 in contingent rental income for the
year ended December 31, 2003 as compared to $27,271 for the same period of 2002.
The increase in contingent rental income was due to an increase in gross sales
of certain restaurant Properties, the leases of which require the payment of
contingent rent.
For the year ended December 31, 2003, the Partnership earned $395,641 as
compared to $409,465 during the same period of 2002 attributable to the net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. Net income earned by unconsolidated joint ventures decreased
slightly during 2003, as compared to the same period of 2002, due to the fact
that Kingsville Real Estate Joint Venture, in which the Partnership owns a
31.13% interest, recorded a provision for write-down of assets in the amount of
$30,800, relating to its property in Kingsville, Texas, because the tenant of
the property did not exercise its option to renew its lease. The lease expired
in January 2004. The provision represented the difference between the carrying
value of the property at December 31, 2003 and its estimated fair value. The
lost revenues that will result from the loss of this lease will have an adverse
effect on net income earned by joint ventures if the joint venture is unable to
re-lease the Property in a timely manner.
During the year ended December 31, 2003, two lessees (or groups of
affiliated tenants) of the Partnership, Jack in the Box Inc. and Jack in the Box
Eastern Division, L.P. (which are affiliated entities under common control of
Jack in the Box Inc.) (hereinafter referred to as "Jack in the Box Inc.") and
Flagstar Enterprises, Inc., each contributed more than 10% of the Partnership's
total rental revenues (including the Partnership's share of rental revenues from
Properties owned by joint ventures and a Property owned with an affiliate of the
General Partners as tenants-in-common). As of December 31, 2003, Jack in the Box
Inc. was the lessee under leases relating to eight restaurants and Flagstar
Enterprises, Inc. was the lessee under leases relating to 11 restaurants. It is
anticipated that based on the minimum rental payments required by the leases,
that these tenants will each continue to contribute more than 10% of the
Partnership's total rental revenues during 2004. In addition, during the year
ended December 31, 2003, four Restaurant Chains, Jack in the Box, Denny's,
Hardee's and Long John Silver's each accounted for more than 10% of the
Partnership's total rental revenues (including the Partnership's share of rental
revenues from Properties owned by joint ventures and a Property owned with an
affiliate of the General Partners as tenants-in-common). In 2004, it is
anticipated that these four Restaurant Chains each will continue to account for
more than 10% of the Partnership's total rental revenues to which the
Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains will materially affect the Partnership's operating
results if the Partnership is not able to re-lease the Properties in a timely
manner.
Operating expenses, including depreciation and amortization expense were
$872,162 for the year ended December 31, 2003 as compared to $862,640 for the
same period of 2002. The increase in operating expenses was primarily
attributable to an increase in depreciation expense as a result of the
acquisition of the Properties in San Antonio, Texas and Clive, Iowa, as
described above. The increase in operating expenses during 2003 was partially
offset by a decrease in the costs incurred for administrative expenses for
servicing the Partnership and its Properties.
During the year ended December 31, 2002, the Partnership identified and
sold two Properties that were classified as discontinued operations in the
accompanying financial statements. The Partnership recognized a gain on disposal
of discontinued operations of approximately $501,100 relating to these
Properties. During 2003, the Partnership identified and sold its Property in
Tempe, Arizona to a third party and received net sales proceeds of approximately
$673,300 resulting in a gain on disposal of discontinued operations of
approximately $57,300. The Partnership recorded a provision for write-down of
assets in the amount of approximately $57,700 relating to this Property. The
provision represented the difference between the carrying value of the property
and its estimated fair value. In addition, during 2003, the Partnership
identified for sale its Properties in Blue Springs, Missouri and Black Mountain,
North Carolina. These Properties are classified as discontinued operations in
the accompanying financial statements. The Partnership recognized net rental
income (rental revenues less Property related expenses and provision for
write-down of assets) of $83,813 and $299,687 during the years ended December
31, 2003 and 2002, respectively, relating to these Properties.
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Rental revenues from continuing operations were $3,388,810 during the
year ended December 31, 2002 as compared to $3,306,156 for the same period of
2001. The increase in rental revenues from continuing operations during 2002 was
primarily due to the Partnership reinvesting the majority of the net sales
proceeds from the 2001 sales of the Properties in Rialto, California and Winter
Haven, Florida in Properties in Pflugerville and Pasadena, Texas in December
2001. The increase in rental revenues from continuing operations was also
partially attributable to the Partnership reinvesting the proceeds from the sale
of the Property in Arlington, Texas in a Property in San Antonio, Texas.
The Partnership also earned $27,271 in contingent rental income for the
year ended December 31, 2002 as compared to $19,927 for the same period of 2001.
The increase in contingent rental income was due to an increase in gross sales
of certain restaurant Properties, the leases of which require the payment of
contingent rent.
For the year ended December 31, 2002, the Partnership earned $409,465 as
compared to $364,478 during the same period of 2001 attributable to the net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by joint ventures during 2002 was
primarily attributable to the fact that in April 2001, the Partnership invested
in a joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL
Income Fund VIII, Ltd. and CNL Income Fund X, Ltd., each of which is a Florida
limited partnership and an affiliate of the General Partners. The increase in
net income earned by unconsolidated joint ventures during 2002 was partially
offset by the fact that in March 2001, Middleburg Joint Venture, in which the
Partnership owned an 87.54% interest, sold its Property to the tenant. The
Partnership dissolved the joint venture in accordance with the joint venture
agreement.
During the year ended December 31, 2002, the Partnership also earned
$11,880 as compared to $84,986 for the same period of 2001 in interest and other
income. Interest and other income was lower during 2002 due to a decrease in the
average cash balance as a result of the reinvestment of sales proceeds received
in 2001 and due to a decline in interest rates.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $862,640 for the year ended December
31, 2002 as compared to $1,259,827 for the same period of 2001. Operating
expenses were higher during 2001 as a result of the Partnership recording a
provision for write-down of assets of $362,265 relating to the Properties in
Winter Haven, Florida and Albany, Georgia. The provision represented the
difference between the net carrying value of the Properties and their estimated
fair value. The tenant of the Property in Winter Haven, Florida ceased rental
payments to the Partnership and vacated the Property. The tenant of the Property
in Albany, Georgia terminated its lease with the Partnership. The Partnership
sold the Property in Winter Haven, Florida in December 2001 and re-leased the
Property in Albany, Georgia in January 2001 to a new tenant with lease terms
substantially the same as the Partnership's other leases. In addition, operating
expenses were higher during 2001, because the Partnership incurred certain
expenses, such as repairs and maintenance, insurance and real estate taxes in
connection with the Property in Winter Haven, Florida before it was sold. This
Property was sold in December 2001 and the Partnership will not continue to
incur expenses related to this Property. The decrease in operating expenses
during 2002 was also attributable to a decrease in the costs incurred for
administrative expenses for servicing the Partnership and its Properties.
Depreciation expense increased due to the acquisitions of the Properties in San
Antonio, Texas and Clive, Iowa. Although these Properties replaced two
properties that were sold in 2002, the expenses related to disposed Properties
are reported as discontinued operations in the financial statements as required
by Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets."
As a result of the sale of the Properties in Rialto, California and
Winter Haven, Florida the Partnership recognized a gain on sale of assets of
approximately $349,500 during the year ended December 31, 2001. Because these
Properties were identified for sale prior to the January 2002 implementation of
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," the results of operations relating
to these Properties were included as Income from Continuing Operations in the
accompanying financial statements.
During the year ended December 31, 2002, the Partnership identified and
sold two Properties that were classified as discontinued operations in the
accompanying financial statements. The Partnership recognized a gain on disposal
of discontinued operations of approximately $501,100 relating to these
Properties. The Partnership recognized net rental income (rental revenues less
Property related expenses) of $299,687 and $403,014 during the years ended
December 31, 2002 and 2001, respectively, relating to these Properties.
The General Partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the Limited
Partners.
The Partnership's leases as of December 31, 2003, are generally
triple-net leases, and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
the results of operations of the Partnership. Continued inflation may cause
capital appreciation of the Partnership's Properties. Inflation and changing
prices, however, also may have an adverse impact on the sales of the restaurants
and on potential capital appreciation of the Properties.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that company is
subject to a majority risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. Prior to FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership does not have interests in structures commonly referred to as
special-purpose entities. Therefore, application of FIN 46R is required in the
Partnership's financial statements for periods ending after March 15, 2004. The
general partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-36
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund XII, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund XII, Ltd. (a Florida limited
partnership) at December 31, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under item 15(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhousCoopers LLP
Orlando, Florida
March 24, 2004
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2003 2002
--------------- ----------------
ASSETS
Real estate properties with operating leases, net $21,817,407 $21,492,877
Net investment in direct financing leases 6,008,257 6,985,214
Real estate held for sale 1,875,108 2,624,706
Investment in joint ventures 4,347,361 4,434,559
Cash and cash equivalents 2,063,934 1,263,592
Certificates of deposit 550,991 541,162
Receivables, less allowance for doubtful accounts of $170,957
and $49,248, respectively 9,454 460
Accrued rental income, less allowance for doubtful accounts
of $9,061 in 2003 and 2002 2,424,111 2,433,681
Other assets 46,191 51,453
--------------- ----------------
$39,142,814 $39,827,704
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 25,185 $ 7,127
Real estate taxes payable 16,504 18,488
Distributions payable 956,252 1,068,752
Due to related parties 19,503 20,984
Rents paid in advance and deposits 224,710 224,979
--------------- ----------------
Total liabilities 1,242,154 1,340,330
Commitment (Note 11)
Partners' capital 37,900,660 38,487,374
--------------- ----------------
$39,142,814 $39,827,704
=============== ================
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2003 2002 2001
----------------- ---------------- ----------------
Revenues:
Rental income from operating leases $ 2,830,943 $ 2,589,526 $ 2,430,464
Earned income from direct financing leases 687,161 799,284 875,692
Contingent rental income 36,094 27,271 19,927
Interest and other income 19,486 11,880 84,986
----------------- ---------------- ----------------
3,573,684 3,427,961 3,411,069
----------------- ---------------- ----------------
Expenses:
General operating and administrative 283,382 308,158 324,393
Property related 20,012 29,796 95,022
Management fees to related parties 44,730 42,279 40,719
State and other taxes 43,004 49,763 49,739
Depreciation and amortization 481,034 426,060 387,689
Provision for write-down of assets -- 6,584 362,265
----------------- ---------------- ----------------
872,162 862,640 1,259,827
----------------- ---------------- ----------------
Income before gain on sale of assets and equity in
earnings of unconsolidated joint ventures 2,701,522 2,565,321 2,151,242
Gain on sale of assets -- -- 349,516
Equity in earnings of unconsolidated joint ventures 395,641 409,465 364,478
----------------- ---------------- ----------------
Income from continuing operations 3,097,163 2,974,786 2,865,236
----------------- ---------------- ----------------
Discontinued operations
Income from discontinued operations 83,813 299,687 403,014
Gain on disposal of discontinued operations 57,318 501,083 --
----------------- ---------------- ----------------
141,131 800,770 403,014
----------------- ---------------- ----------------
Net income $ 3,238,294 $ 3,775,556 $ 3,268,250
================= ================ ================
Income per limited partner unit
Continuing operations $ 0.69 $ 0.66 $ 0.64
Discontinued operations 0.03 0.18 0.09
----------------- ---------------- ----------------
$ 0.72 $ 0.84 $ 0.73
================= ================ ================
Weighted average number of limited partner units
outstanding 4,500,000 4,500,000 4,500,000
================= ================ ================
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2003, 2002 and 2001
General Partners Limited Partners
------------------------------------- ----------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2000 $ 1,000 $ 258,109 $ 45,000,000 $ (29,950,059) $ 29,271,578
Distributions to limited
partners ($0.85 per
limited partner unit) -- -- -- (3,825,008) --
Net income -- -- -- -- 3,268,250
------------------ ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2001 1,000 258,109 45,000,000 (33,775,067) 32,539,828
Distributions to limited
partners ($0.88 per
limited partner unit) -- -- -- (3,937,508) --
Net income -- -- -- -- 3,775,556
------------------ ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2002 1,000 258,109 45,000,000 (37,712,575) 36,315,384
Distributions to limited
partners ($0.85 per
limited partner unit) -- -- -- (3,825,008) --
Net income -- -- -- -- 3,238,294
------------------ ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2003 $ 1,000 $ 258,109 $ 45,000,000 $ (41,537,583) $ 39,553,678
================== ================= ================== ================= ==================
- --------------
Syndication
Costs Total
- --------------- ---------------
$ (5,374,544) $ 39,206,084
-- (3,825,008)
-- 3,268,250
- --------------- ---------------
(5,374,544) 38,649,326
-- (3,937,508)
-- 3,775,556
- --------------- ---------------
(5,374,544) 38,487,374
-- (3,825,008)
-- 3,238,294
- --------------- ---------------
$ (5,374,544) $ 37,900,660
=============== ===============
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2003 2002 2001
---------------- ---------------- ---------------
Cash Flows from Operating Activities:
Net income $ 3,238,294 $ 3,775,556 $ 3,268,250
---------------- ---------------- ---------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 493,684 452,725 442,404
Amortization of net investment in direct
financing 210,445 185,107 148,849
Leases
Amortization 22,771 5,348 5,352
Equity in earnings of unconsolidated joint
ventures, net of distributions 86,129 143,006 122,377
Gain on sale of assets (57,318) (501,083) (349,516)
Provisions for write-down of assets 57,706 6,584 362,265
Decrease (increase) in receivables (18,823) 5,175 188,549
Decrease (increase) in interest receivable -- 3,944 (33,830)
Decrease (increase) in other assets 1,901 (5,604) 6,947
Decrease (increase) in accrued rental income 15,436 (196,898) (304,245)
Increase (decrease) in accounts payable and
accrued expenses and real estate taxes payable 16,074 (3,541) (19,057)
Increase (decrease) in due to related parties (1,481) (4,901) 3,077
Increase in due from related parties -- 24,986 3,017
Increase (decrease) in rents paid in advance and
deposits (269) 48,987 90,129
---------------- ---------------- ---------------
Total adjustments 826,255 163,835 666,318
---------------- ---------------- ---------------
Net cash provided by operating activities 4,064,549 3,939,391 3,934,568
---------------- ---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of real estate properties 673,301 1,871,865 2,472,661
Additions to real estate properties with
operating leases -- (2,004,511) (2,478,795)
Liquidating distribution from joint venture -- -- 1,663,260
Investment in joint ventures -- -- (1,689,609)
Collection on mortgage note receivable -- -- 43,760
---------------- ---------------- ---------------
Net cash provided by (used in) investing
activities 673,301 (132,646) 11,277
---------------- ---------------- ---------------
Cash flows from financing activities:
Distributions to limited partners (3,937,508) (3,825,008) (3,825,008)
---------------- ---------------- ---------------
Net cash used in financing activities (3,937,508) (3,825,008) (3,825,008)
---------------- ---------------- ---------------
Net increase (decrease) in cash and cash equivalents 800,342 (18,263) 120,837
Cash and cash equivalents at beginning of year 1,263,592 1,281,855 1,161,018
---------------- ---------------- ---------------
Cash and cash equivalents at end of year $ 2,063,934 $ 1,263,592 $ 1,281,855
================ ================ ===============
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31,
2003 2002 2001
---------------- ---------------- ---------------
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at
December 31 $ 956,252 $ 1,068,752 $ 956,252
================ ================ ===============
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies
Organization and Nature of Business - CNL Income Fund XII, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators or franchisees of
national and regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisitions of real estate properties at cost, including acquisition
and closing costs. Real estate properties are leased to unrelated third
parties on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs. During
the years ended December 2003, 2002, and 2001, tenants paid, or are
expected to pay, directly to real estate taxing authorities
approximately $560,800, $540,000, and $516,800, respectively, in
estimated real estate taxes in accordance with the terms of their
leases.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
operating or the direct financing methods.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
Direct financing method - Leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset). Unearned income is deferred and amortized
to income over the lease terms so as to produce a constant
periodic rate of return on the Partnership's net investment in
the leases. For the leases classified as direct financing
leases, the building portions of the property leases are
accounted for as direct financing leases while a majority of
the land portion of these leases are operating leases.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Substantially all leases are for 10 to 20 years and provide for minimum
and contingent rentals. The lease options generally allow tenants to
renew the leases for two to five successive five-year periods subject
to the same terms and conditions as the initial lease. Most leases also
allow the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to their fair values.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is made to increase the
allowance for doubtful accounts. If amounts are subsequently determined
to be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Des
Moines Real Estate Joint Venture, Williston Real Estate Joint Venture,
Kingsville Real Estate Joint Venture, Columbus Joint Venture, Bossier
City Joint Venture, CNL VIII, X, XII Kokomo Joint Venture and a
property in Colorado Springs, Colorado held as tenants-in-common with
affiliates of the General Partners are accounted for using the equity
method since each joint venture agreement requires the consent of all
partners on all key decisions affecting the operations of the
underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds. Cash equivalents
are stated at cost plus accrued interest, which approximates market
value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Lease Costs - Other assets include brokerage fees associated with
negotiating leases and are amortized over the term of the new lease
using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2003 presentation.
These reclassifications had no effect on total partners' capital, net
income or cash flows.
Statement of Financial Accounting Standards No. 144 - Effective January
1, 2002, the Partnership adopted Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement requires that a long-lived asset be
tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset. The assessment is based on the
carrying amount of the asset at the date it is tested for
recoverability. An impairment loss is recognized when the carrying
amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is
its new cost basis. The statement also requires that the results of
operations of a component of an entity that either has been disposed of
or is classified as held for sale be reported as a discontinued
operation if the disposal activity was initiated subsequent to the
adoption of the Standard.
FASB Interpretation No. 46 - In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity
in its financial statements. To improve financial reporting by
companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. In December 2003,
the FASB issued FASB Interpretation No. 46R ("FIN 46R"), to clarify
some of the provisions of FIN 46. Under FIN 46R, special effective date
provisions apply to entities that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests
in structures that are commonly referred to as special-purpose entities
for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of
variable interest entities is required in financial statements for
periods ending after March 15, 2004. The Partnership did not fully or
partially apply FIN 46 prior to the issuance of FIN 46R. Also, the
Partnership does not have interests in structures commonly referred to
as special-purpose entities. Therefore, application of FIN 46R is
required in the Partnership's financial statements for periods ending
after March 15, 2004. The General Partners believe adoption of this
standard may result in either consolidation or additional disclosure
requirements of the Partnership's
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
unconsolidated joint ventures, which are currently accounted for under
the equity method. However, such consolidation is not expected to
significantly impact the Partnership's results of operations.
2. Real Estate Properties with Operating Leases
Real estate properties with operating leases consisted of the following
at December 31:
2003 2002
------------------- -------------------
Land $ 11,844,521 $ 11,844,521
Buildings 13,218,875 12,417,740
------------------- -------------------
25,063,396 24,262,261
Less accumulated depreciation (3,245,989) (2,769,384)
------------------- -------------------
$ 21,817,407 $ 21,492,877
=================== ===================
In June 2002, the Partnership reinvested the proceeds from the sale of
its property in Arlington, Texas and the remaining proceeds from the
2001 sale of the property in Winter Haven, Florida in a property in San
Antonio, Texas. In September 2002, the Partnership reinvested the
proceeds from the sale of a property in Valdosta, Georgia in a property
in Clive, Iowa (see Note 5).
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2003:
2004 $ 2,905,165
2005 2,931,056
2006 2,945,612
2007 2,958,345
2008 2,973,227
Thereafter 14,568,010
--------------
$ 29,281,415 (1)
==============
(1) Excludes one property which was classified as real estate held for
sale and two properties that sold in 2004.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
3. Net Investment in Direct Financing Leases
The following lists the components of the net investment in direct
financing leases at December 31:
2003 2002
----------------- -----------------
Minimum lease payments receivable $ 8,465,133 $ 10,583,197
Estimated residual values 2,233,899 2,473,599
Less unearned income (4,690,775 ) (6,071,582 )
----------------- -----------------
Net investment in direct financing leases $ 6,008,257 $ 6,985,214
================= =================
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 2003:
2004 $ 826,293
2005 826,293
2006 826,293
2007 826,293
2008 872,558
Thereafter 3,808,494
-----------
$7,986,224 (1)
===========
(1) Excludes one property which was classified as real estate held for
sale and two properties that were sold in 2004.
During 2003, the leases relating to the properties in Tempe and
Phoenix, Arizona were amended. As a result, the Partnership
reclassified the assets from net investment in direct financing leases
to real estate properties with operating leases.
4. Investment in Joint Ventures
As of December 31, 2003, the Partnership had a 59.05%, an 18.61%, a
31.13%, a 27.72%, a 55% and an 80% interest in the profits and losses
of Williston Real Estate Joint Venture, Des Moines Real Estate Joint
Venture, Kingsville Real Estate Joint Venture, Columbus Joint Venture,
Bossier City Joint Venture, and CNL VIII, X, XII Kokomo Joint Venture,
respectively. The remaining interests in these joint ventures are held
by affiliates of the Partnership which have the same general partners.
The Partnership also has a 57% interest in a property in Colorado
Springs, Colorado, with an affiliate of the general partners, as
tenants in common.
During the year ended December 31, 2003, Kingsville Real Estate Joint
Venture recorded a provision for write-down of assets in the amount of
$30,800, relating to its property in Kingsville, Texas because the
tenant of the property did not exercise its option to renew its lease.
The lease expired in January 2004. The provision represented the
difference between the carrying value of the property at December 31,
2003 and its estimated fair value.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
Williston Real Estate Joint Venture, Des Moines Real Estate Joint
Venture, Kingsville Real Estate Joint Venture, Columbus Joint Venture,
Bossier City Joint Venture, CNL VIII, X, XII Kokomo Joint Venture and
the Partnership and affiliates, in a tenancy in common arrangement,
each own one property.
The following presents the joint ventures' combined, condensed
financial information at December 31:
2003 2002
--------------- ---------------
Real estate properties with operating leases, net $ 7,133,035 $ 7,337,741
Net investment in direct financing leases 615,983 633,362
Cash 67,899 37,707
Receivables -- 153
Accrued rental income 290,281 247,903
Other assets -- 170
Liabilities 70,983 40,053
Partners' capital 8,036,215 8,216,983
Years Ended December 31,
2003 2002 2001
--------------- -------------- ---------------
Revenues $ 939,262 $ 943,283 $ 894,206
Expenses (179,846 ) (179,375 ) (173,420 )
Provision for write-down of assets (30,800 ) -- --
--------------- -------------- ---------------
Net Income $ 728,616 $ 763,908 $ 720,786
=============== ============== ===============
The Partnership recognized income totaling $395,641, $409,465, and
$364,478, for the years ended December 31, 2003, 2002, and 2001,
respectively, from these joint ventures and the property held as
tenants-in-common with affiliates.
5. Discontinued Operations
In April 2002, the Partnership sold its property in Arlington, Texas to
a third party and received net sales proceeds of approximately
$1,248,200 resulting in a gain on disposal of discontinued operations
of $334,000. In August 2002, the Partnership sold its property in
Valdosta, Georgia to a third party and received net sales proceeds of
approximately $623,700 resulting in a gain on disposal of discontinued
operations of approximately $167,100. During 2003, the Partnership
identified three additional properties for sale. As a result, the
properties were reclassified from real estate properties with operating
leases and investment in direct financing leases to real estate held
for sale. The reclassified assets were recorded at the lower of their
carrying amounts or fair value, less cost to sell. In December 2003,
the Partnership sold one of these properties, in Tempe, Arizona, to a
third party and received net sales proceeds of approximately $673,300
resulting in a gain on disposal of discontinued operations of
approximately $57,300. The financial results of these properties are
reflected as Discontinued Operations in the accompanying financial
statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
5. Discontinued Operations - Continued
The operating results of the discontinued operations for the above
properties are as follows:
Year Ended December 31,
---------------------------------------------
2003 2002 2001
------------ ----------- ------------
Rental revenues $ 209,229 $334,617 $ 463,374
Expenses (67,710 ) (34,930 ) (60,360)
Provision for write-down of assets (57,706 ) -- --
------------ ----------- ------------
Income from discontinued operations $ 83,813 $299,687 $ 403,014
============ =========== ============
6. Allocations and Distributions
From inception through December 31, 1999, all net income and net losses
of the Partnership, excluding gains and losses from the sale of
properties, were allocated 99% to the limited partners and one percent
to the general partners. Distributions of net cash flow were made 99%
to the limited partners and one percent to the general partners.
However, the one percent of net cash flow to be distributed to the
general partners is subordinated to receipt by the limited partners of
an aggregate, ten percent, cumulative, noncompounded annual return on
their invested capital contributions (the "Limited Partners' 10%
Return").
From inception through December 31, 1999, net sales proceeds from the
sale of properties, not in liquidation of the Partnership, to the
extent distributed, were distributed first to the limited partners in
an amount sufficient to provide them with their Limited Partners' 10%
Return, plus the return of their adjusted capital contributions. The
general partners then received, to the extent previously subordinated
and unpaid, a one percent interest in all prior distributions of net
cash flow and a return of their capital contributions. Any remaining
sales proceeds were distributed 95% to the limited partners and five
percent to the general partners. Any gain from the sale of a property
not in liquidation of the Partnership was, in general, allocated in the
same manner as net sales proceeds were are distributable. Any loss from
the sale of a property was, in general, allocated first, on a pro rata
basis, to partners with positive balances in their capital accounts;
and thereafter, 95% to the limited partners and five percent to the
general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
accounts balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95% to the
limited partners and five percent to the general partners.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
6. Allocations and Distributions - Continued
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2003, 2002 and 2001.
During the years ended December 31, 2003 and 2001, the Partnership
declared distributions to the limited partners of $3,825,008. During
the year ended December 31, 2002, the Partnership declared
distributions of $3,937,508 which included a special distribution of
$112,500 representing cumulative excess operating reserves. No
distributions have been made to the general partners to date.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
7. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2003 2002 2001
--------------- --------------- ---------------
Net income for financial reporting purposes $ 3,238,294 $ 3,775,556 $ 3,268,250
Effect of timing differences relating to depreciation (38,880) (77,151) (86,914)
Direct financing leases recorded as operating
leases for tax reporting purposes 210,446 185,106 148,848
Provision for write-down of assets 57,706 -- 362,265
Effect of timing differences relating to
gains/losses on real estate property sales (22,713) (501,083) (338,327)
Effect of timing differences relating to equity in
earnings of joint ventures 28,627 (6,759) 191,130
Effect of timing differences relating to allowance
for doubtful accounts 121,709 -- 20,678
Accrued rental income 15,436 (190,314) (303,491)
Rents paid in advance 5,981 40,988 91,629
Other (454) (1,768) --
--------------- --------------- ---------------
Net income for federal income tax purposes $ 3,616,152 $ 3,224,575 $ 3,354,068
=============== =============== ===============
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
8. Related Party Transactions
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL Restaurant
Properties, Inc. (formerly known as CNL American Properties Fund, Inc.)
served as the Partnership's advisor until January 1, 2002, when it
assigned its rights and obligations under a management agreement to RAI
Restaurants, Inc. (the "Advisor"). The Advisor is a wholly owned
subsidiary of CNL Restaurant Properties, Inc. ("CNL-RP"). The
individual general partners are stockholders and directors of CNL-RP.
The Advisor provides services pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership agreed to pay
the Advisor a management fee of one percent of the sum of gross
revenues from properties owned by the Partnership and the Partnership's
allocable share of gross revenues from joint ventures. The Partnership
incurred management fees of $44,730, $42,279 and $40,719, for the years
ended December 31, 2003, 2002, and 2001, respectively.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the Limited Partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees have been incurred
since inception.
During the years ended December 31, 2003, 2002, and 2001, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership. The Partnership incurred
$166,848, $207,309, and $245,519 for the years ended December 31, 2003,
2002, and 2001, respectively, for such services.
The amounts due to related parties at December 31, 2003 and 2002,
totaled $19,503 and $20,984, respectively.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
9. Concentration of Credit Risk
The following schedule presents rental revenues from individual
lessees, or affiliated groups of lessees, each representing more than
10% of the Partnership's total rental revenues (including the
Partnership's share of rental revenues from joint ventures and the
property held with an affiliate as tenants-in-common) for each of the
years ended December 31:
2003 2002 2001
-------------- ------------- -------------
Jack in the Box Inc. and Jack in the Box
Eastern Division, L.P. $ 795,619 $ 829,799 $ 994,523
Flagstar Enterprises, Inc. 737,734 744,883 761,163
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than 10% of the
Partnership's total rental revenues (including the Partnership's share
of rental revenues from joint ventures and the property owned with an
affiliate as tenants-in-common), for each of the years ended December
31:
2003 2002 2001
---------------- ---------------- ---------------
Jack in the Box $ 795,619 $ 829,799 $ 994,523
Denny's 700,556 785,859 684,816
Hardee's 737,734 744,883 761,162
Long John Silver's 467,003 447,498 463,546
Although the Partnership's properties have some geographic diversity in
the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any lessee or restaurant chain
contributing more than 10% of the Partnership's revenues will
significantly impact the results of operations of the Partnership if
the Partnership is not able to re-lease the properties in a timely
manner.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
10. Selected Quarterly Financial Data
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2003 and
2002.
2003 Quarter First Second Third Fourth Year
------------------------------- ------------- ------------- ------------- ------------- --------------
Continuing Operations (1):
Revenues $ 892,364 $ 897,533 $ 914,705 $ 869,082 $ 3,573,684
Equity in earnings of
unconsolidated joint
ventures 102,274 101,662 99,880 91,825 395,641
Income from continuing
operations 734,432 789,288 803,411 770,032 3,097,163
Discontinued Operations (1):
Revenues 50,262 49,896 49,751 59,320 209,229
Income (loss) from and gain
on disposal of
discontinued operations 28,687 46,736 (34,884 ) 100,592 141,131
Net income
763,119 836,024 768,527 870,624 3,238,294
Income (loss) per limited partner unit:
Continuing operations $ 0.16 $ 0.18 $ 0.18 $ 0.17 $ 0.69
Discontinued operations 0.01 0.01 (0.01 ) 0.02 0.03
------------- ------------- ------------- ------------- --------------
$ 0.17 $ 0.19 $ 0.17 $ 0.19 $ 0.72
============= ============= ============= ============= ==============
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
10. Selected Quarterly Financial Data - Continued
2002 Quarter First Second Third Fourth Year
------------------------------- ------------- ------------- ------------- ------------- --------------
Continuing Operations (1):
Revenues $ 844,142 $ 856,744 $ 884,496 $ 842,579 $ 3,427,961
Equity in earnings of
unconsolidated joint
ventures 101,936 104,279 101,659 101,591 409,465
Income from continuing
operations 687,817 756,206 787,641 743,122 2,974,786
Discontinued operations (1):
Revenues 114,839 95,050 81,922 42,806 334,617
Income from and gain on
disposal of discontinued
operations 103,775 420,608 241,602 34,785 800,770
Net income 791,592 1,176,814 1,029,243 777,907 3,775,556
Income per limited partner unit:
Continuing operations $ 0.15 $ 0.17 $ 0.18 $ 0.16 $ 0.66
Discontinued operations 0.03 0.09 0.05 0.01 0.18
------------- ------------- ------------- ------------- --------------
$ 0.18 $ 0.26 $ 0.23 $ 0.17 $ 0.84
============= ============= ============= ============= ==============
(1) Certain items in prior years' financial statements have been
reclassified to conform to 2003 presentation. These reclassifications
had no effect on total net income. The results of operations relating
to properties that were identified for sale as of December 31, 2001 but
sold subsequently are reported as continuing operations. The results of
operations relating to properties that were either identified for sale
and disposed of subsequent to January 1, 2002 or were classified as
held for sale as of December 31, 2003 are reported as discontinued
operations for all periods presented.
11. Commitment
In December 2003, the Partnership entered into an agreement with a
third party to sell the property in Blue Springs, Missouri.
12. Subsequent Events
In March 2004, the Partnership sold its properties in Toccoa, Georgia
and Blue Springs, Missouri for approximately $2,349,200 and received
aggregate net sales proceeds of approximately $2,273,900 resulting in
an aggregate gain on the sales of approximately $655,300 which will be
recognized in the first quarter of 2004.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL-RP, CCM, CNL Financial Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 57. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL-RP, a public, unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief Executive Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, from its inception in 1990 until it merged with a
wholly-owned subsidiary of CNL-RP in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. CNL Fund Advisors,
Inc., formerly CNL Institutional Advisors, Inc., is a registered investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and is the parent
company, either directly or indirectly through subsidiaries, of CNL Real Estate
Services, Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL
Securities Corp., all of which are engaged in the business of real estate
finance. Mr. Seneff also serves as a Director and Chairman of the Board of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality Properties, Inc. from
its inception in 1997 until 2003 and served as Co-Chief Executive Officer from
February 2003 until May 1, 2003. Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997. Mr. Seneff also served as Chief Executive Officer from
its inception in 1997 through February 2003, and currently serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman of the Board of CNL Retirement Corp. since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange, since 1992 and served as
Chief Executive Officer of Commercial Net Lease Realty, Inc. from 1992 through
February 2004. Mr. Seneff has served as a Director, Chairman of the Board, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL Commercial
Finance, Inc. since 2000. Mr. Seneff also serves as Chairman of the Board of
CNLBank, an independent, state-chartered commercial bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of the
Florida state retirement plan. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 56. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne has
served as a Director and Vice Chairman of the Board of CNL-RP since 1994. Mr.
Bourne also served as President of CNL-RP from 1994 through February 1999 and
served as Treasurer from February 1999 through August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
including, President from 1994 through September 1997, and Director from 1994
through August 1999. Mr. Bourne serves as President and Treasurer of CNL
Financial Group, Inc. Mr. Bourne serves as Director, Vice Chairman of the Board
and Treasurer and from 1997 until June 2002 served as President of CNL
Hospitality Properties, Inc. and as Director, President and Treasurer of CNL
Hospitality Corp. Mr. Bourne also serves as Director and Treasurer of CNL
Retirement Properties, Inc. and as Director and Treasurer of CNL Retirement
Corp. Mr. Bourne serves as a Director of CNLBank. Mr. Bourne has also served as
a Director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty, Inc. Mr. Bourne serves as
Director, President and Treasurer for various affiliates of CNL Financial Group,
Inc. including, CNL Investment Company, CNL Securities Corp. and CNL
Institutional Advisors, Inc. Mr. Bourne began his career as a certified public
accountant employed by Coopers & Lybrand, Certified Public Accountants, from
1971 through 1978, where he attained the position of Tax Manager in 1975. Mr.
Bourne graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.
Curtis B. McWilliams, age 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief Executive Officer of CNL-RP since September
2003. Mr. McWilliams served as Co-Chief Executive Officer of CNL-RP from
December 2000 through September 2003 and served as Chief Executive Officer from
September 1999 through December 2000. Mr. McWilliams also served as President
and Chief Executive Officer of CNL Franchise Network Corp., a wholly owned
subsidiary of CNL-RP since August 2002 and served as President of CNL-RP from
February 1999 until September 1999 and as Executive Vice President of CNL-RP
from 1997 through February 1999. Mr. McWilliams served as an Executive Vice
President of CNL Financial Group, Inc. from the time he joined the company in
April 1997 until September 1999. Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and CNL Financial Services, Inc., a corporation engaged in the
business of real estate financing, from April 1997 until the acquisition of such
entities by wholly owned subsidiaries of CNL-RP in September 1999. From
September 1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch
& Co. The majority of his career at Merrill Lynch & Co. was in the Investment
Banking division where he served as a Managing Director. Mr. McWilliams received
a B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master
of Business Administration degree with a concentration in finance from the
University of Chicago in 1983.
Steven D. Shackelford, age 40. Mr. Shackelford was promoted to
Executive Vice President and Chief Operating Officer of CNL-RP in September
2003. Mr. Shackelford has also served as Chief Financial Officer since January
1997. He served as Senior Vice President of CNL-RP from January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP since September 1999. He also
served as Chief Financial Officer of CNL Fund Advisors, Inc. from September 1996
to September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse LLP where he was responsible
for advising foreign clients seeking to raise capital and a public listing in
the United States. From August 1992 to March 1995, he was a manager in the
Paris, France office of Price Waterhouse, serving several multi-national
clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of Arts degree in Accounting, with honors, and a Master of Business
Administration degree from Florida State University and is a certified public
accountant.
Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide strategic advisory services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates since January 2003. Since November 2001 he has been an
independent consultant working for a variety of operating and investment
companies in the hospitality industry. Until October 2001, Mr. Arasi was
President & Chief Executive Officer, and a member of the Board of Directors of
Lodgian, Inc., a New York Stock Exchange traded company, one of the largest
independent hotel owner/operators in North America, with hotel properties under
most brand names including Marriott, Courtyard by Marriott, Fairfield Inn by
Marriott, Crowne Plaza, Holiday Inn, Hilton, and Radisson. From June 1997
through November 2000, Mr. Arasi was a member of the Management Committee and
held several top operating positions with Bass Hotels & Resorts, one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman Hotel Corporation, Vice President of Salomon Brothers,
Inc., in New York, Tokyo and Los Angeles and held positions with Sheraton,
Westin and HVS International. Mr. Arasi graduated from Cornell University in
January 1981, where he received a Bachelor's degree in Hotel and Restaurant
Administration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2003.
Code of Business Conduct
The Partnership does not have employees and, accordingly, has not
adopted a code of business conduct applicable exclusively to the Partnership.
However, employees of the general partners or their affiliates, including the
individual general partners, are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar Code of Business Conduct adopted by CNL Restaurant
Properties, Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.
Audit Committee Financial Expert
Due to its organization as a limited partnership, the Partnership does
not have an audit committee that is responsible for supervising the
Partnership's relationship with its independent auditors. For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal financial officer of companies with businesses similar to that of
the Partnership, Robert A. Bourne, one of the General Partners, has the
requisite experience to be considered an "audit committee financial expert" as
defined in the rules under the Securities Exchange Act of 1934, if the
Partnership had an audit committee. As a General Partner, Mr. Bourne is not
independent of the Partnership
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
As of March 12, 2004, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 12, 2004, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership has no equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2003, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- ---------------------------------- -------------------------------------- --------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and administrative
operating expenses the lower of cost or 90% of the services: $166,848
prevailing rate at which comparable
services could have been obtained in
the same geographic area.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of the
Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual management fee One percent of the sum of gross $44,730
to affiliates operating revenues from Properties
wholly owned by the Partnership plus the
Partnership's allocable share of gross
revenues of joint ventures in which the
Partnership is a co-venturer. The
management fee, which will not exceed
competitive fees for comparable services
in the same geographic area, may or may
not be taken, in whole or in part as to
any year, in the sole discretion of
affiliates.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real estate
commission, or (ii) three percent of the
sales price of such Property or
Properties. Payment of such fee shall be
made only if affiliates of the General
Partners provide a substantial amount of
services in connection with the sale of a
Property or Properties and shall be
subordinated to certain minimum returns
to the Limited Partners. However, if the
net sales proceeds are reinvested in a
replacement Property, no such real estate
disposition fee will be incurred until
such replacement Property is sold and the
net sales proceeds are distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners.
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 2003
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order or
priority: (i) first, to pay all debts and
liabilities of the Partnership and to
establish reserves; (ii) second, to
Partners with positive capital account
balances, determined after the allocation
of net income, net loss, gain and loss,
in proportion to such balances, up to
amounts sufficient to reduce such
balances to zero; and (iii) thereafter,
95% to the Limited Partners and 5% to the
General Partners.
Item 14. Principal Accountant Fees and Services
The following table outlines the only fees paid or accrued by the Partnership
for the audit and other services provided by the Partnership's independent
certified public accountants, PricewaterhouseCoopers LLP, for the years ended
December 31:
2003 2002
--------------------- ---------------------
Audit Fees (1) $ 15,413 $ 13,600
Tax Fees (2) 8,108 7,213
--------------------- ---------------------
Total $ 23,521 $ 20,813
===================== =====================
(1) Audit services of PricewaterhouseCoopers LLP for 2003 and 2002
consisted of the examination of the financial statements of the
Partnership and quarterly review of financial statements.
(2) Tax Fees relates to tax consulting and compliance services.
Each of the non-audit services described above was approved by the General
Partners. Due to its organization as a limited partnership, the Partnership does
not have an audit committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2003 and 2002
Statements of Income for the years ended December 31, 2003,
2002, and 2001
Statements of Partners' Capital for the years ended December
31, 2003, 2002, and 2001
Statements of Cash Flows for the years ended December 31,
2003, 2002, and 2001
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II -Valuation and Qualifying Accounts for the years
ended December 31, 2003, 2002 and 2001
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2003
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2003
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements
or notes thereto.
3. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11
and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XII, Ltd. (Included as Exhibit 4.2
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.1 Management Agreement between CNL Income Fund XII,
Ltd. and CNL Investment Company (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on April 15, 1993, and
incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1995,
and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2001, and
incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included
as Exhibit 10.5 to Form 10-Q filed with the
Securities and Exchange Commission on August 13,
2002, and incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period
October 1, 2003 through December 31, 2003.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 25th day of
March, 2004.
CNL INCOME FUND XII, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
----------------------------
JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert A. Bourne President, Treasurer and Director March 25, 2004
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 25, 2004
- ------------------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2003, 2002, and 2001
Additions Deductions
--------------------------------- -------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
2001 Allowance for
doubtful
accounts (a) $ 191,942 $ 12,665 $ 100,231 (b) $ 91,631 (c) $ 153,130 $ 60,077
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ 60,077 $ 42,182 $ -- $ 35,319 (c) $ 8,631 $ 58,309
============== =============== ================ ============= ============ ============
2003 Allowance for
doubtful
accounts (a) $ 58,309 $ 153,290 $ -- $ -- $ 31,581 $ 180,018
============== =============== ================ ============= ============ ============
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Reduction of rental, earned, and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
Costs Capitalized
Subsequent to Net Cost Basis at Which
Initial Cost Acquisition Carried at Close of Period (c)
----------------------- ------------------- ------------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
---------- ---------- ----------------------- -------- ------------ ------------ ----------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurant:
Natchitoches, Louisiana - $152,329 - $489,366 - $152,329 $489,366 $641,695
Denny's Restaurants:
St. Ann, Missouri (k) - 338,826 302,975 - - 338,826 302,975 641,801
Phoenix, Arizona (o) - 456,306 390,839 - - 456,306 390,839 847,145
Columbus, Georgia (g) - 125,818 314,690 - - 125,818 314,690 440,508
Tempe, Arizona (o) - 709,275 410,295 - - 709,275 410,295 1,119,570
Golden Corral Family
Steakhouse Restaurant:
Arlington, Texas - 711,558 1,159,978 - - 711,558 1,159,978 1,871,536
Hardee's Restaurants:
Crossville, Tennessee - 290,136 334,350 - - 290,136 334,350 624,486
Toccoa, Georgia - 208,847 - - - 208,847 (f) 208,847
Columbia, Mississippi - 134,810 - - - 134,810 (f) 134,810
Pensacola, Florida - 277,236 - - - 277,236 (f) 277,236
Columbia, South Carolina - 325,674 - - - 325,674 (f) 325,674
Simpsonville, South Carolina - 239,494 - - - 239,494 (f) 239,494
Indian Trail, North Carolina - 298,938 - - - 298,938 (f) 298,938
Clarksville, Georgia - 160,478 415,540 - - 160,478 415,540 576,018
Jack in the Box Restaurants:
Spring, Texas - 564,164 510,639 - - 564,164 510,639 1,074,803
Houston, Texas - 360,617 659,805 - - 360,617 659,805 1,020,422
Grapevine, Texas - 471,367 590,988 - - 471,367 590,988 1,062,355
Phoenix, Arizona - 294,773 527,466 - - 294,773 527,466 822,239
Petaluma, California - 534,076 800,780 - - 534,076 800,780 1,334,856
Willis, Texas - 569,077 427,381 - - 569,077 427,381 996,458
Houston, Texas - 368,758 663,022 - - 368,758 663,022 1,031,780
KFC Restaurant:
Las Cruces, New Mexico - 175,905 - - - 175,905 (f) 175,905
Krispy Kreme Doughnuts Restaurant:
Clive, Iowa (m) - 306,431 410,366 - - 306,431 410,366 716,797
Krystal Restaurant:
Pooler, Georgia - 410,085 598,982 - - 410,085 598,982 1,009,067
Long John Silver's Restaurants:
Clarksville, Tennessee (i) - 166,283 384,574 - - 166,283 384,574 550,857
El Paso, Texas - 314,270 - - - 314,270 (f) 314,270
Tucson, Arizona - 277,378 245,385 - - 277,378 245,385 522,763
Asheville, North Carolina(j) - 213,536 453,223 - - 213,536 453,223 666,759
Taco Cabana Restaurants:
Pflugerville, Texas - 674,782 816,449 - - 674,782 816,449 1,491,231
Pasadena, Texas - 477,192 510,374 - - 477,192 510,374 987,566
Houston, Texas (n) - 616,685 671,028 - - 616,685 671,028 1,287,713
Other:
Albany, Georgia (l) - 378,547 765,736 - - 378,547 765,736 1,144,283
Statesville, North Carolina(h)- 240,870 334,643 30,000 - 240,870 364,644 605,514
---------- ---------- --------- -------- ------------ ------------ ----------
$11,844,521 $12,699,508 $519,366 - $11,844,521 $13,218,875 $25,063,396
========== ========== ========= ======== ============ ============ ==========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Denny's Restaurant:
Amherst, Ohio - $127,672 $169,928 $316,796 - (f) (f) (f)
Hardee's Restaurants:
Toccoa, Georgia - - 437,938 - - - (f) (f)
Fultondale, Alabama - 173,015 - 636,480 - (f) (f) (f)
Poplarville, Mississippi - 138,019 - 444,485 - (f) (f) (f)
Columbia, Mississippi - - 367,836 - - - (f) (f)
Pensacola, Florida - - - 450,193 - - (f) (f)
Columbia, South Carolina - - 452,333 - - - (f) (f)
Simpsonville, South Carolina - - 517,680 - - - (f) (f)
Indian Trail, North Carolina - - 496,110 - - - (f) (f)
KFC Restaurant:
Las Cruces, New Mexico - - 224,790 - - - (f) (f)
Long John Silver's Restaurants:
Murfreesboro, Tennessee - 174,746 555,186 - - (f) (f) (f)
El Paso, Texas - - - 371,286 - - (f) (f)
Chattanooga, Tennessee - 142,627 584,320 - - (f) (f) (f)
---------- ---------- --------- --------
$756,079 $3,806,121 $2,219,240 -
========== ========== ========= ========
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con-Date Statement is
DepreciationstructiAcquired Computed
- ---------------------------------------
$175,855 1993 12/92 (b)
52,695 1993 11/92 (k)
17,611 1993 11/92 (o)
108,364 1980 01/93 (g)
18,810 1982 02/93 (o)
428,290 1992 12/92 (b)
122,873 1992 12/92 (b)
(f) 1992 12/92 (d)
(f) 1991 01/93 (d)
(f) 1993 03/93 (d)
(f) 1991 05/93 (d)
(f) 1992 06/93 (d)
(f) 1992 07/93 (d)
144,392 1992 07/93 (b)
186,576 1993 01/93 (b)
241,087 1993 01/93 (b)
215,944 1992 01/93 (b)
193,257 1992 01/93 (b)
292,591 1993 01/93 (b)
155,494 1993 02/93 (b)
241,234 1993 02/93 (b)
(f) 1990 03/93 (d)
20,270 1995 09/02 (b)
74,043 2000 04/00 (b)
69,911 1993 03/93 (i)
(f) 1993 06/93 (d)
85,766 1992 07/93 (b)
80,527 1993 08/93 (j)
56,699 2000 12/01 (b)
35,446 2000 12/01 (b)
35,416 1997 06/02 (b)
104,424 1991 12/92 (l)
88,414 1993 04/93 (h)
- -----------
$3,245,989
===========
1987 07/93 (e)
(d) 1992 12/92 (d)
1993 12/92 (e)
1993 01/93 (e)
(d) 1991 01/93 (d)
(d) 1993 03/93 (d)
(d) 1991 05/93 (d)
(d) 1992 06/93 (d)
(d) 1992 07/93 (d)
(d) 1990 03/93 (d)
1989 02/93 (e)
(d) 1993 06/93 (d)
1993 07/93 (e)
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2003, 2002, and 2001 have been adjusted to reflect
the reclassification of properties accounted for as discontinued
operations.
Accumulated
Cost Depreciation
----------------- -----------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 2000 $ 20,607,781 $ 2,144,581
Reclassified to operating lease (k) 1,383,763 --
Acquisitions 2,478,795 --
Dispositions (2,212,588 ) (178,245 )
Depreciation expense -- 382,336
----------------- -----------------
Balance, December 31, 2001 22,257,751 2,348,672
Acquisitions 2,004,510 --
Depreciation expense -- 420,712
----------------- -----------------
Balance, December 31, 2002 24,262,261 2,769,384
Reclassified to operating lease (o) 801,135 --
Depreciation expense -- 476,605
----------------- -----------------
Balance, December 31, 2003 $ 25,063,396 $ 3,245,989
================= =================
(b) Depreciation expense is computed for buildings and improvements based upon
estimated lives of 30 years.
(c) As of December 31, 2003, the aggregate cost of the Partnership's wholly
owned Properties was $33,053,374 for federal income tax purposes. All of
the leases are treated as operating leases for federal income tax
purposes.
(d) The portion of the lease relating to the building has been recorded as a
direct financing lease. The cost of the building has been included in net
investment in direct financing leases; therefore, depreciation is not
applicable.
(e) The portion of the lease relating to the building has been recorded as a
direct financing lease. The cost of the building has been included in net
investment in direct financing leases; therefore, depreciation is not
applicable.
(f) Certain components of the lease relating to land and building have been
recorded as a direct financing lease. Accordingly, costs relating to these
components of this lease are not shown.
(g) Effective January 1994, the lease for this Property was amended, resulting
in the reclassification of the building portion of the lease to an
operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 29 years.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2003
(h) Effective June 1998, the lease for this Property was amended, resulting in
a reclassification of the building portion of the lease to an operating
lease. The building was recorded at net book value and depreciated over
its remaining estimated life of approximately 25 years.
(i) Effective October 1999, the lease for this Property was amended, resulting
in the reclassification of the building portion of the lease as an
operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 23 years.
(j) Effective October 1999, the lease for this Property was amended, resulting
in the reclassification of the building portion of the lease as an
operating lease. The building was recorded at net book value and
depreciated over its remaining life of approximately 24 years.
(k) Effective January 2000, the lease for this Property was amended, resulting
in the reclassification of the building portion of the lease as an
operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 23 years.
(l) Effective January 2001, the lease for this Property was terminated,
resulting in the reclassification of the building portion of the lease as
an operating lease. The building was recorded at net book value and
depreciated over its remaining life of approximately 22 years.
(m) During 2002, the Partnership purchased the land and building from CNL Net
Lease Investors, L.P., an affiliate of the General Partners, for an
aggregate cost of $716,797.
(n) During 2002, the Partnership purchased the land and building from CNL
2001-A, LP, an affiliate of the General Partners, for an aggregate cost of
$1,287,713.
(o) Effective February 2003, the leases for these Properties were amended,
resulting in the reclassification of the building portion of the leases as
an operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 20 years.
EXHIBIT INDEX
Exhibit Number
(a) Exhibits
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of
CNL Income Fund XII, Ltd. (Included as Exhibit 4.2 to Form
10-K filed with the Securities and Exchange Commission on
April 15, 1993, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund XII, Ltd. and
CNL Investment Company (Included as Exhibit 10.1 to Form
10-K filed with the Securities and Exchange Commission on
April 15, 1993, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment
Company to CNL Income Fund Advisors, Inc. (Included as
Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 31, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated
herein by reference.)
10.4 Assignment of Management Agreement from CNL Advisors, Inc.
to CNL APF Partners, LP. (Included as Exhibit 10.4 to Form
10-Q filed with the Securities and Exchange Commission on
August 13, 2001, and incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF Partners,
LP to CNL Restaurants XVIII, Inc. (Included as Exhibit 10.5
to Form 10-Q filed with the Securities and Exchange
Commission on August 13, 2002, and incorporated herein by
reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2